1995 (3) TMI 150 - AT - Income Tax

Summary

Issues Involved:
1. Taxation Year of Income
2. Certification of Income by Architects
3. System of Accounting Followed
4. Dispute with the Bank
5. Work-in-Progress Consideration

Issue-wise Detailed Analysis:

1. Taxation Year of Income:
The assessee's primary grievance was that the Commissioner of Income-tax (Appeals) erred in upholding the taxation of Rs. 15,78,434 as income for the impugned assessment year instead of the assessment year 1992-93. The facts reveal that the assessee, a company engaged in renovation and interior decoration, was awarded a contract by the Standard Chartered Bank in 1987. The final bill was submitted on 29-3-1990, and the amount of Rs. 15,78,434 was shown as a liability in the balance sheet under 'Advances' and marked as 'disputed and outstanding'. The Assessing Officer (AO) found no evidence of dispute and noted that the work was completed and payments were made by the Bank by 31-3-1990. The assessee admitted no dispute with the Bank and claimed that the amount was pending certification by the Architects. The AO, not satisfied with this explanation, treated the amount as income for the relevant assessment year.

2. Certification of Income by Architects:
The assessee contended that income should only be recognized when bills are certified by the Architects, M/s. JSA. The AO, however, noted that the Bank had already accounted for the total billing and there was no dispute. The Commissioner of Income-tax (Appeals) upheld this view, noting that the Bank had settled the matter by 31-3-1990, and there was no dispute, thus rejecting the assessee's claim that pending certification precluded the recognition of income.

3. System of Accounting Followed:
The assessee argued that their system of accounting recognized income only upon certification by the Architects. The Departmental Representative countered that the nature of receipt should be judged by the conduct of the parties, not merely the accounting system. The Tribunal agreed with the Department, noting that the Bank had accepted the final bill and treated the contract as concluded by 31-3-1990, thus the income should be recognized in that year.

4. Dispute with the Bank:
The AO made independent inquiries and recorded a statement from the Bank's Premises Manager, confirming no dispute existed and the work was completed by 29-3-1990. The assessee admitted there was no dispute with the Bank, reinforcing the AO's decision to treat the amount as income for the relevant year.

5. Work-in-Progress Consideration:
The Departmental Representative argued that even if treated as work-in-progress, the addition was justified. The Tribunal, however, found this argument irrelevant as the work was completed within the relevant year, and the issue of work-in-progress valuation did not arise. The Tribunal rejected the Department's reliance on the Supreme Court judgment in British Paints India Ltd.'s case, noting it was not applicable.

Conclusion:
The Tribunal upheld the order of the Commissioner of Income-tax (Appeals), concluding that the income of Rs. 15,78,434 should be taxed in the relevant assessment year. The appeal of the assessee was dismissed.